Consumer spending in U.S. rose in line with forecast in June

Consumer spending in the U.S. rose in line with forecasts in June as Americans’ incomes grew, a sign the biggest part of the economy is withstanding fiscal headwinds.

Household purchases, which account for about 70% of the economy, rose 0.5%, after a 0.2% increase the prior month that was less than previously estimated, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.5% rise. Incomes advanced 0.3%.

Rising home values, stock price gains, and an improved job market are cushioning the effects of a payroll tax increase that began in January. Bigger spending gains are needed to overcome federal budget cuts and weak overseas economies, which are slowing growth.

“Consumers continue to spend but they’re effectively treading water,” Omair Sharif, U.S. economist at RBS Securities in Stamford, Connecticut, said before the report. “There’s not a lot of momentum but they’re holding their own for the most part.”

Projections

Projections on spending ranged from increases of 0.1% to 0.7% in the Bloomberg survey of 74 economists. The May reading previously was reported as a gain of 0.3%.

The survey median called for incomes to rise 0.4%. The prior month’s income figure was revised from a gain of 0.5%.

Gross domestic product grew at a 1.7% annualized rate in the second quarter after a 1.1% gain in the first three months of the year, the Commerce Department reported this week. An increase in investments for new equipment and construction projects indicates gains could be sustained into the second half of the year.

“Economic growth will pick up from its recent pace and the unemployment rate will gradually decline,” Federal Reserve policy makers said Wednesday after a two-day meeting, indicating they’ll continue their $85 billion in monthly bond purchases, which are meant to stoke expansion and boost employment.

The Commerce Department this week also recalibrated its measure of GDP with a package of revisions, including a new treatment for pensions that recognizes retirement fund contributions as they’re promised instead of when they’re paid out. The accounting change boosted the size of personal income and lifted the savings rate a percentage point, to 4.7%, between 2002 and 2012.

Inflation Adjusting

Adjusting consumer spending for inflation, purchases rose 0.1% in June, the same as in the previous month.

Automakers are on pace for their best showing in six years as job gains boost confidence and consumers replace older vehicles. Cars and light trucks sold at a 15.6 million annualized rate in July and 15.9 million the prior month, the strongest back-to-back readings since late 2007, according to figures from Ward’s Automotive Group.

General Motors Co. deliveries rose 16% in July. Honda Motor Co. sales in the U.S. were up 21% and Toyota Motor Corp. reported a 17% gain. Light vehicle sales for Ford Motor Co., Chrysler Group LLC and Nissan Motor Co. were all up 11%, the companies reported.

“With the strength we’re seeing in household wealth, consumer sentiment, housing, and manufacturing, we think there’s definitely more room to grow this year,” GM Vice President Kurt McNeil said on a sales and revenue call yesterday. “Exactly how much upside there is will depend on factors like the job market and interest rates. We’ll obviously have to wait and see, but we’re optimistic.”